The Big Screen: New Tech Funds From Teams That Weren't Born Yesterday

Want to start a tech fund? Seriously, everybody's doing it.

Investors chasing recent hot returns from tech stocks and fund companies chasing investor dollars have led to an unprecedented number of tech-fund launches this year from fund companies large and small. At the start of 1998 there were 40 tech funds. Last year, when the average tech fund rang up a jaw-dropping 135% return, 25 more rolled out. Already this year, 46 more have launched. (Here's the list so far -- there may be even more since new funds often don't show up in databases for several months and at least 13 more are filed with regulators.)

The reason for the explosion: filthy lucre. Last year, investors stuffed $33.5 billion into tech funds and they've invested another $36.3 billion so far this year, even though the average tech fund is basically flat for the year. Before 1999, the category's calendar-year record in-flow was $4.4 billion (set in 1995). Fund companies of all types have rushed to market with tech portfolios to get a piece of the action. For investors, that's good and bad.

"The plus is that it gives investors more choices. The flip side is that you really need to look carefully at these funds and the companies launching them because there are real risks in such a volatile sector," says Chris Traulsen, the senior analyst who focuses on tech funds at Morningstar.

So, this week the Big Screen huddles with Traulsen to see which of this year's tech-fund rookies might merit watching. With such a long list of funds and such a profound paucity of portfolio and performance information, we picked these 10 because they're offered by fund companies with a solid research staff and/or a demonstrated acumen for picking tech and growth stocks.

Ten From Class of 2000 Of the nearly 50 tech funds launched so far this year, here are 10 rookies with research muscle.
Rookie Tech Fund	Return Since Inception	Inception
(PAIVX)PIMCO Global Innovation	93.9%	Dec. 31
Amerindo B2B Internet	65.9%	May 30
PBHG Global Technology & Communications	18.2%	June 1
Turner B-to-B E-Commerce	2	June 30
(MANTX)Merrill Lynch Internet Strategies	2%*	March 22
American Century Technology	-2.4	June 30
Putnam Technology	-5.1	June 14
(MNIAX)Munder International NetNet	-10.7	April 10
(BIOPX)Baron iOpportunity	-12.4	Feb. 29
MFS Technology	N/A	March 1
Source: Morningstar, MaxFunds.com, company Web sites. Performance through July 27. *Return over the past three months.

First, a caveat: This is not a buy list. It's tough to glean which of a gaggle of new funds will shine and which will stumble. Rather, this is a watch list whittled from the vast new crop, which should come in handy because less than a third of the tech funds out there have a three-year record, according to Morningstar.

The idea of looking for funds launched by shops with a demonstrated growth/tech-stock picking skill makes sense because many companies not historically known for being tech savvy have rolled out tech funds lately just to capture assets.

"Forty-six new funds in a specialty category in 2000? Is this a joke? It looks like a classic land grab. Fund companies saw [steep in-flows] and if they didn't have one, they needed one," Traulsen says. He points to tech funds from decidedly low-tech shops like Franklin, Delaware and Fifth Third Bank as examples of dubious Johnny-come-latelies.

While he admits that funds from shops like these could turn out to be winners, he'd focus on veteran shops. Like whom?

Aggressive investors might monitor (PAIVX)PIMCO Global Innovation, American Century Technology and PBHG Global Technology & Communications.

That's because each of these fund companies is known for having solid analyst benches and/or running high-octane funds in a style that it teaches all its staffers.

"They manage money in a consistent style. They hate the word, but I'd describe them as momentum shops," says Traulsen. While that approach is high-octane, focusing primarily on aggressive, fast-growing companies, they're the firms' specialties and you know what you're in for when you invest in their funds.

PIMCO manager Dennis McKechnie has run (PIVAX)PIMCO Innovation since late 1998, with stellar results. The American Century fund is co-managed by Christopher Boyd and Douglas Day. Boyd has been a portfolio manager for seven years, working on high-profile funds like (TWCUX)American Century Ultra. Michael Ma, former telecom analyst and now manager of the PBHG fund, is probably the shortest on experience. His fund's prospectus doesn't note previous fund-management experience.

Don't let the global labels on some of these funds throw you, by the way. As always, you should check out any fund's holdings, but most tech funds with "global" in their names have most of their assets invested in the U.S. If you're hunting for foreign tech exposure, but not the specificity of the new India Tech fund or Matthews Asian Tech fund, take a look at (MNIAX)Munder International NetNet, which still expects to have 25% of its assets at home.

If you're aggressive and particularly bullish on the business-to-business sector you might watch Amerindo B2B Internet. Lead manager Alberto Vilar, who recently discussed his Net outlook on TSC, has been running tech and biotech portfolios for institutional investors since the 1980s. The tech evangelist might be the most aggressive manager in the area, but he can put up big numbers. Last year his flagship (ATCHX)Amerindo Technology fund racked up a 249% return, but it's down more than 30% so far this year.

For those investors who work with an adviser and are combing through the rookies for a solid, broad tech fund, you might consider Putnam Technology or MFS Technology. Both of these Boston shops grab whatever decent analysts cross-town rival Fidelity doesn't snag. The two companies also have solid reputations for running growth funds. David Santos and Paul Marrkand, two hands on the Putnam fund's team, also work on other solid funds like (POGAX)Putnam Growth Opportunities and (PVOYX)Putnam Voyager, respectively.

More conservative types might keep an eye on (BIOPX)iBaron Opportunity and Turner B-to-B E-Commerce. A pair of former analysts, Matt Ervin and Mitch Rubin, are running the Baron fund, but Ron Baron is supervising. Traulsen says Baron hasn't made a lot of money in the tech sector, but his tendency to buy stocks with the idea of holding them for three to five years might be a good fit for those looking for lower volatility. The fund is down more than 12% since its Feb. 29 inception.

Why would a conservative investor ever consider going near a B2B fund? Bob Turner, who talked with TSC last Monday, might be one of the most gifted tech/growth-stock pickers around. Witness his Technology fund, which is up 218% over the past year and has managed to post a 31.6% return since Jan. 1.

His new B2B fund might be a good idea because he plans to hold plenty of Old Economy stocks like Enron(ENE) and General Electric (GE) who'll do plenty of business over the Web, not just volatile tech plays like Ariba(ARBA) or Commerce One(CMRC).

There you have it, a shorter list culled from the long and still-growing list of tech rookies. Even if you're not in the market for a tech fund, it might be a good idea to keep this list handy. It will be interesting to see how many of these are around a few years from now. If tech-stock performance and tech-fund flows slow, many probably won't stick around.

"I'd be surprised if a lot of these new funds didn't merge or liquidate down the road," says Traulsen.

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